Insurance Lingo: Waivers of Subrogation
So you’ve got a nice new contract with a much larger customer now. And you read the paperwork as it comes over and it says that you agree to a Waiver of Subrogation. Waiver of Subrogation! What in the world is that?
Hi, I’m Jeff Gordon from Gordon Atlantic Insurance and a waiver of subrogation is something that we see commonly with contracting relationships.
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What is Subrogation?
But let’s talk about what subrogation is first and then we’ll talk about how to waive it. So subrogation actually is the process in which an insurance company may pay a claim and then say that their customer was not the responsible party.
Subrogation in the Auto Industry
A classic example of subrogation is the car accident scenario. Roughly speaking, half the car accidents that happen are the other driver’s fault.
So after the car has been fixed and after the claims were paid and everybody goes about their business, the lawyers in the background from company A could say “hey, your driver was responsible for this and our bill was $2745 dollars. Pay it.”
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Company B says “OK, we’ll pay it” because they know they’re going to lose if they go to court. They know who was responsible. So subrogation is a recovery process.
What a Waiver of Subrogation Means for Your Business
So what’s a waiver of subrogation? A waiver of subrogation says “if I’m a contractor and I hurt myself on your premises, my worker’s compensation will pay for my lost wages and my medical and all that stuff. But they can’t come after you.”
And so a waiver of subrogation oftentimes comes with a cost because underwriters know that when they grant this, they’re not going to be able to recover and that’s part of where they get their money to pay other claims.
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Don’t Let Waivers of Subrogation Scare You
This is fairly common in contracting operations, but don’t let it scare you. It’s not terribly expensive, but often it will come with a cost. We see it most commonly with worker’s compensation and with general liability and oftentimes in contracting operations. But it’s not scary. It’s not crazy. It’s actually quite simple when you understand the terms.
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About Geoff Gordon
Geoff Gordon has been the owner/president of the Gordon Atlantic Insurance agency since 1987. Gordon Atlantic Insurance provides commercial and personal insurance to businesses and families throughout Massachusetts.
A prolific writer and recognized industry thought leader, Geoff has contributed articles to Banker & Tradesman, a regional trade periodical, and served on the Quincy Patriot Ledger’s Board of Economic Advisors column. He is a member of the Plymouth Rock Assurance Agents Advisory Council as well as the Bunker Hill Insurance Agents Advisory Council. Geoff has presented to the Financial Planning Association’s (FPA) education series and teaches locally. Most recently Geoff spoke to a TEDx conference on “Personal Risk for a Rich Life” in February 2016.
Geoff obtained his Certified Financial Planner (CFP®) designation in 1985, the Certified Insurance Counselor (CIC) in 1995, and his Certified Risk Manager (CRM) designation in 2004, and serves as an Asssociate Faculty member of the Institute of Insurance Education and Reasearch, a national credentialling organization.